Guest Editorial: Is it time to eliminate spiffs? Part deux
Last month, I wrote an editorial about the need to eliminate showroom spiffs that created a lot of conversation.
Quite a few not-so-happy showroom employees expressed their displeasure at the idea — and at me. So I thought doing a follow-up editorial that dives a little deeper would be beneficial for everyone.
I stand by my belief that spiff control is important for showrooms. But I want to be very clear that I am not promoting this concept to cut anyone’s pay or potential earnings. Quite the opposite, actually. I want to improve income for everyone involved!
A quick point — I’m writing using the type of terms and ideas that I would use when talking with showroom owners. But I’m directing it to all showroom employees because in reality great employees should take ownership of their responsibilities by thinking and acting like owners.
Part of that is being concerned about profitability to ensure everyone within an organization benefits from the overall profits. When the funding for spiffs is used in a more diligent way, showrooms and their teams benefit in several ways:
• Showrooms that aren’t tied down by spiffs have a better appearance because they feature the right displays from the right manufacturers in-house. When spiffs are involved, showrooms must display rather rogue, one-off companies that offer more spiff than gross profit.
• When the funding for spiffs is used to better enhance your marketing programs, you’ll draw more business coming in the door, which then translates to an increase in sales.
More sales, more profit, more payroll dollars available. It’s just that simple.
Manage your showroom without spiffs
Once showrooms are being managed properly without spiffs, their profitability almost certainly increases. That’s an incentive for owners to rethink their pay scales and most likely showroom employees will see an increase in their pay — or at least remain at the same level as when spiffs controlled the business.
Please try to think like business owners for a minute, rather than as employees and consider this: If the showroom was your business, would you rather make more on a spiff than on gross profit? I have seen products sold where the spiff was more than $100 and the gross profit was less than that. This is where it just doesn’t make sense.
I encourage showroom owners to set up a commission plan based on target gross profit and target products with no spiffs. When spiffs are eliminated, showrooms start selling what they are supposed to and at a price they are supposed to. This situation would most certainly modify sales teams’ behavior.
Re-think employee compensation
My suggestion is that showroom employees’ compensation would be comprised of just a few components:
• First is a minimum sales level you must maintain to be on the floor. I hope employees all realize that they must cover not just their salaries but also their benefits. And they also have to include overhead costs into that equation as well — things such as lights, water, electricity, cleaning, heating/cooling, insurance, and everything else that keeps the doors open and creates the showroom experience.
• Next would be a tiered approach to commissions based on the gross-profit levels employees sell at. This can vary by showroom because those who have a strong plumber or builder presence likely will realize lower profit levels. For those with a strong retail presence, the gross-profit level should be higher. Three tiers are enough and will make it easy to track. This can be accomplished by setting a target pay and then working the tiers of commission that you expect from each of your staff each month.
• The last component of sales teams’ pay is driven by a few key manufacturers that showroom ownership have decided to partner with. In these situations, the owners and vendors make a commitment to help each other through implementing a program that is managed by the showroom owners. Working closely with their vendors, showroom owners should select a few key lines that have high sales and profit potential that would also be easy to track.
Hopefully this follow-up article answers a few more questions and will resonate with more of you. Yes, eliminating spiffs takes work. Yes, at first it sounds complicated. But once the new spiff-less plan is implemented, showroom owners and employees will become much more aware of what is possible in terms of profitability and the commodity brands will fall off the map.
Solid showroom management
A word of caution, however. A major factor in the success of these new plans is solid showroom management that doesn’t allow reps with new lines to infiltrate their showroom without planning and discussion. Sure, it always is tempting when someone offers an attractive, free display and a massive spiff. But when it competes against your current partners and works against your committed mutual goals, it is bad for your business.
So, back to “thinking like an owner” — if you were the owner, would you want your employees selling eight lines of bathtubs when you only need four? What do you think will happen when you need a favor from one of those manufacturers? Will you get it? Or will they look at you as a showroom that is trying to be everything to everyone and not committed to any brand.
Everything I’m suggesting is advice that will benefit both vendors and showrooms. If you are a #Rockstar salesperson, you should be well-compensated with pay based on your performance. However, if you are a salesperson who steers end users to products just to get the spiff and doesn’t really consider selling them a product that actually could have been better — for the customer, the showroom and the vendor — you are working against your owners and vendors.
Showroom owners need to openly communicate with employees when explaining their choices and how those choices will affect both the business and the individuals. When owners take control of what is allowed on display from a strategic standpoint, everyone benefits. Working with fewer vendors and making your showroom feel more like a boutique than a retail center is more attractive than ever. Focus on being the best at selling fewer lines and I guarantee your profitability will go up, your sales will go up and you will become a better showroom.
Let me be perfectly clear — I do not think that showroom salespeople should take a hit in income when spiffs are removed. Similar to how a spiff system works, owners must set targets to modify their sales team’s behavior that leads to the desired result.
In the end, salespeople, owners and their dedicated vendor partners will make more money.